Investing Logic and Intuit, and the Tired and the True

The Times today continues a new weekly feature, Stock Exchange, in which staff writers James Peltz and Michael Hiltzik debate the merits of individual stocks and other investments.

Intuit (INTU)

Intuit close Monday: $48.88, +$1.38

Mike: Our first stock is Intuit Inc., which I know has long been a favorite of yours, Jim.

Jim: Guilty as charged. Intuit, of course, is famous for developing one of the most popular financial software programs ever--Quicken, the personal finance program that so perfectly exploits the calculating abilities of a personal computer.

Mike: And, you might add, so perfectly serves the anal-retentiveness of some people when it comes to managing their checkbooks.

Jim: I’ll ignore that remark. Anyway, Intuit has sold some 10 million copies of Quicken. It lets people track not only their checking accounts, but virtually all aspects of their finances, including their progress toward retirement and college savings and their stock portfolios. Its Turbo Tax tax-preparation software is a winner too.

But both face stiff competition from Microsoft and others, and, frankly, the whole business of selling personal finance software in a box is now flat, because the market is saturated.

Mike: You might add that Microsoft loved Quicken so much that a few years ago it tried to buy Intuit.

Jim: That’s right, but the Justice Department’s objections on antitrust grounds nixed the deal--Microsoft already had a personal finance program of its own. When that happened in early 1996, Intuit’s stock--which had gotten to nearly $90 a share--simply crashed. A year later it was wallowing near $20.

Mike: Just because the merger fell through?

Jim: There was more. About the same time, Intuit’s basic business was hitting the wall. So the company and its founder, Scott Cook, chose to move Intuit away from boxed software and to the Internet, where it has tried to forge links to as many financial services as possible.

Mike: Specifically, via Intuit’s main Web site, https://www.quicken.com.

Jim: Right. The idea is, you use that site as a “portal” to access all sorts of financial services, whether it’s getting a new mortgage, tracking your investments or doing your taxes.

Mike: And for these services you pay basically nothing.

Jim: That’s right. And therein lies the problem I have with this stock. Among today’s wannabes of Internet commerce, Intuit will be a survivor. But it’s only begun the transition, and it’s unclear how much revenue it will eventually get from its Internet advertisers, or from commissions for relaying customers to other Web sites, and so forth--which is how it expects to make money.

Mike: Meanwhile, Quicken the software is a dead end. It’s hard to see why any new version would be a must-buy for anyone who’s already loaded any of the last two or three versions on a PC.

Jim: So the question is whether Intuit can exploit the Web.

Mike: As we’ve discussed before in relation to Amazon.com and others, it’s anybody’s guess as to what will prosper on the Web. And I’m no more sanguine after visiting Quicken.com.

Jim: It’s reportedly a very popular site.

Mike: Yep, and it’s got some good features. But they tend to be generic, like so much supposedly “personalized” information on the Web. Just for a test, I used its “mortgage finder” by filling out its financial questionnaire and asking for the best interest rates. The rates it offered were so out of line with today’s mortgage market I thought I’d been transported back to the Jimmy Carter era.

Jim: Still, the key question is whether they’ll get a revenue stream from the Web site.

Mike: I agree. There is a fundamental misunderstanding of how Web usage is going to play out. The whole “portal” craze envisions the Web as a great walled fortress with a few doors that everybody will need to get through. Supposedly owning one of these doorways will be like owning the only toll bridge to an island. But the technology doesn’t work that way. To me, if you’ve got 14 million Web sites out there, you’ve got 14 million portals to the Web. You can enter the Web from anywhere, and you don’t need to go through Quicken.com.

Jim: Nor do you need it to get access to any of the other financial Web sites.

Mike: Of course not. So I’m waiting to see some evidence that there’s money to be made over the long term and as the Web evolves in this sort of project.

Jim: Well you’ve hit on it exactly. I mean, having said how much I like this company, I wouldn’t buy this stock right now. For me, the predictability of the earnings of this company--or the general growth of this company, period--is way too iffy during this transition to buy this stock.

Mike: Right, so two thumbs down on Intuit.

Goodyear Tire & Rubber (GT)

Goodyear close Monday: $53.63, +$0.25

Jim: This is the world’s biggest tire company, Mike, and it also happens to be celebrating its 100th anniversary this year.

Mike: And it’s an appropriate stock today, since it’s become a practice of this column every week to go from the cyber sphere right down to where the rubber meets the road.

Jim: You can’t get any more low-tech than Goodyear, can you?

Mike: No. There’s hardly anything more mundane than a company that makes tires for the family car. But that doesn’t mean that Goodyear is entirely a boring company.

Jim: No, sir. Goodyear has an interesting history--and not only because it had one of the most famous takeover battles of the takeover-crazy 1980s.

Mike: Why don’t you relive that?

Jim: It was in the ‘85-’86 period, when lots of corporate raiders were taking over huge American corporations. Goodyear became the target of the late Sir James Goldsmith . . . .

Mike: A fascinating character in his own right. We in the press always identified him, rather bizarrely, as an “Anglo-French” financier--which as far as I could tell meant that he had a wife and family in each country.

Jim: The notable thing was that Goodyear did not roll over--it basically came up with a defense of taking on some $4 billion of debt to buy out Goldsmith and a lot of other shareholders to make them happy. Goldsmith went away that much richer, and Goodyear then spent the next few years climbing out of the hole it had dug for itself to stay independent.

Mike: And it did a pretty good job.

Jim: The credit goes to Stanley Gault, who was running the company at the time. He did a nice job of turning Goodyear around, and he has since turned over the reins of this company to a fellow named Samir Gibara, who’d been head of its flagship North American tire division. But he can’t be too proud of Goodyear’s stock price lately. At around $53, it’s down more than 20% since mid-March.

Mike: Even so, there’s a lot about Goodyear I happen to like. This is a classic case of a stock that’s been unfairly shunned for its very mundaneness.

Jim: Wrong. It’s a complete laggard, period, and I would continue to shun it.

Mike: But looking ahead, it’s going to be the quintessential market performer. I would buy.

Jim: Why?

Mike: Because if you believe the U.S. economy is going to remain strong and that people are going to buy cars, here’s a company that supplies to the car makers. It doesn’t matter if people buy Chrysler or Ford or General Motors cars--a large number of those cars will be running on Goodyear tires.

Jim: True enough. But the whole tire industry is a laggard.

Mike: And within that industry Goodyear itself is a laggard. So you might get a double punch if Goodyear only comes up to par.

Jim: Hmmm. I agree the U.S. economy will continue to be strong for the foreseeable future, but look what’s happened up to this point: Car sales in this country are already relatively strong--running about 15 million units a year. The Big Three auto maker stocks have gone through the ceiling, until recently, of course. Conditions couldn’t be much better for Goodyear, and yet in the last five years this stock has gained 43%. That’s compared with 142% for the Standard & Poor’s 500. You’d have been much better off just shoving all your money into an S&P; index fund and forgetting about it.

Mike: But that’s looking back. Looking ahead, people will want the good ‘ol reliable standbys--companies exactly like Goodyear, where there’s a lot of value and good, honest industrial potential.

Jim: You mean, in other words, when they get real scared of the Internet stocks.

Mike: When some of these Internet stocks come crashing down to earth, people may start looking at companies that are already down to earth, and Goodyear is one of ‘em.

Jim: But don’t forget: Goodyear’s got a host of other problems, which also turns me off to this stock.

Mike: Price competition?

Jim: Yes, there’s brutal price-cutting in the tire market right now. You’ve got a high level of imports coming from Asia, which keeps prices down. And sales volumes are, excuse the phrase, very flat in this business and don’t look to be going up substantially any time soon. The GM strikes certainly didn’t help matters.

Mike: No, but the GM strikes are over.

Jim: Granted, but Goodyear’s problems overseas aren’t. Foreign sales account for about a third of their business, yet they’re getting clobbered by the strong dollar. I’m not about to predict the dollar’s going to tumble soon, either, so there’s really nothing on the horizon--other than your suggestion that people are going to start looking for defensive stocks like Goodyear--to warrant buying the stock. You want to add anything else?

Mike: There’s unappreciated value here. Goodyear may widen its market share in the United States. Sooner or later, the Asian problem is going to be resolved and, at that point, Goodyear is going to be well-positioned to move right along with the rest of the market.

Jim: I will say this, if you go back to our point at the top of the discussion about buying good stocks--good value--when things are bleak: You can make an argument for Goodyear. This is a company that is selling for 10 times next year’s earnings. You can’t get much cheaper than that . . .

Mike: That’s right.

Jim: . . . for a relatively blue-chip company.

Mike: Right, with very little downside.

Jim: And the leader in its industry. But there are better stocks out there.

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Do you have a stock you would like to see discussed in this column? Michael Hiltzik can be reached at michael.hiltzik@latimes.com; James Peltz can be reached at james.peltz@latimes.com. Or write to either at Business Section, Times Mirror Square, Los Angeles, CA 90053.